More Illustration Of America and The Media

When the housing bubble burst in 2006, U.S. policy makers looked to Japan for clues about what to do — and not do — in response. Now their attention is shifting to Europe as America gets set to follow that region with a concerted attack on its budget deficit.

Among the lessons being drawn: Don’t put off budget action until the financial markets demand it. Big, immediate cuts aren’t always the best way to reduce deficits. And central bankers should be ready to try to offset the economic impact of any fiscal contraction.

Got that?

Unicorns are real.

What’s coming out the back end of that alleged Unicorn is candy.

And it’s yummy to eat, if you will just believe what all the smart people tell you.

Let’s just get down to brass tacks: You can attempt to polish a turd, but it will always be a turd no matter how nice it looks.

Stock prices slumped last week partly on concern that Congress will allow about $607 billion in automatic spending cuts and tax increases to go ahead next year. The Standard & Poor’s 500 Index (SPX) ended at 1,379.85 on Nov. 9, down 2.4 percent on the week.

“This would be self-inflicted, disorderly contraction that would unambiguously push our country into recession,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which manages more than $1.9 trillion in assets, said in a phone interview.

It would be nice if El-Erian would tell the entire truth instead of just a piece of it. What he says is true. The part he’s leaving out is that $607 billion is about half of the deficit spending we are doing right now and that the economy is factually in a recession and has been for the last four years with the federal government’s deficits acting as a fraudulent device in an attempt to evade recognition of that recession.

Look, it’s pretty simple when you get down to it: If you measure GDP in the unit of currency (dollars) then increasing the number of units of that currency in the system by deficit spending must be subtracted back out in order to get a unit-independent view of GDP itself.

You learn this in the first few years of school in your first algebra class but as soon as the topic turns to economics supposedly-smart people “forget” this and try to tell you that the laws of mathematics do not apply, because, well, they said so and they have fancy letters after their name like “BS”, “MS” and “PhD.”

(Shall we discuss whether those monikers stand for bull shit, more shit and piled higher and deeper?)

GDP as currently constituted and reported allows for an outrageous amount of tampering by governments as a direct result of how it is denominated. I would love to see GDP denominated in something that is utterly invariant within our rational governmental lifetime; say, square meters of solar energy flux at the equator. This is a unit that we cannot “print” nor can we temporarily disrupt its equivalence (such as we can with barrels of oil, gallons of gasoline, or for that matter ounces of gold) and thus would provide us with a hard statistical base that could not be gamed.

Unfortunately we do not denominate our alleged economic output in something of that sort, although we could choose to. As a result we wind up with articles similar to that in Bloomberg this morning where various pundits tell us that we “must not” do what Japan did (as they tell it, be “too timid”) or what Europe did (as they tell it, stop deficit spending) lest we “suffer.”

Note that nowhere in that discussion is an admission of the truth that we have been living a lie for decades. We have presented to the world and operated in our lives as if actual economic output and demand that did not exist did; we have silently and through conspiracy and personal act stolen the accumulated wealth of both our nation and her people, expending it as if there was some limitless font from which we could draw, much like we attempted to do with oil in the ground even though we knew decades ago that the cost of extraction would rise and the cheap oil would all be burned up. Now we’re playing the same game with “fracking” and natural gas, with pundits by the hundreds or thousands (most with something to sell you, of course) telling us that a “new golden age of energy” is here in America, without bothering to mention that mathematically when you withdraw something from a finite reservoir at 10x the rate it only lasts 1/10th as long.

Back in the 1990s when I ran MCSNet I was astonished as the firm went from serving a few hundred customers to thousands in a very short period of time, placing incredible demands on both my time and ability to think faster than the technology was evolving. It was not the meteoric rise of the Internet that got a rocket-level boost from the introduction of Windows 95 that made me sit back in my chair and wonder how stupid everyone was; rather it was the number of pundits, analysts and various economists who all argued that the growth rates we were seeing would continue for a very long period of time — decades even.

I chuckled at such prognostications because just a few moments with a calculator led to the inescapable conclusion that at the rates of growth we were seeing every bacterium on the planet would have Internet access by 2020. In 1998, seeing the inevitiability of what was to come but of course not knowing exactly how far the insanity would go, I sold the company and made sure I was both at minimum safe distance and was facing the other way before the bright flash burned out my eyeballs.

Likewise I look at this chart of Federal Medical Spending on the growth path from 1980 to 2011 and its forward projection and break out in peals of laughter at the prospect that we can somehow evade having the entire federal government and economy come crashing down around our ears:

Or our federal budget, which currently pays for only the interest, the light bill in the Capitol, the federal cops in their various uniforms, Medicare, Medicaid and Social Security — and then runs out of money about halfway through our $800 billion in defense:

Self-delusion is a powerful meme. It is in fact the most-powerful and at the same time the most-dangerous, because it tends to be self-reinforcing, especially when you intentionally craft your tools toward your own deception.

A more-mundane example I have used before is found in the person who is under great pressure to perform in some form or fashion. They discover that they can stick a little vial of cocaine in their inside suit pocket with a tiny little spoon and at 2:00pm as they begin to nod off they take a short “bathroom break” and up the nose goes one spoon. There is that instant boost of energy, and the next three hours go by without a problem.

But the original energy deficit wasn’t actually rectified; the snort-happy guy cheated, just as we have cheated. It is not long before the drag comes on at 1:30 instead of 2:00, and the spoon comes out earlier and earlier. Eventually one spoon becomes two, then four, but the first step seemed so harmless, and so easy to rationalize — I only need this today; This is a temporary “pick me up”; “I’ll stop tomorrow”.

Uh huh. Sure you will.

Six months, a year, two, five down the road and now morning coffee is no longer caffeine, it’s a full-on line of coke on the nightstand before you get out of bed. And then one day, as you’re walking into your office, the inevitable tightness in the chest comes on — The Big One.

We have spent 30 years deluding ourselves folks, and we must stop. I have no idea exactly how far we can go with our economic heart before it explodes, only that if we continue down the road we are on it will occur with certainty. Obama’s re-election in the face of disgustingly-deteriorating economic fundamentals is not so much about him as it is about the vapid nature of the political challengers, none of whom had the balls to present what Ross Perot did back during his Presidential run — charts, facts and figures, showing the course of action we were engaged in.

Why not?

That’s simple: When you’re invested in a bogus, fraudulent but profitable enterprise, would you call the curtain down on your own power and manipulation?

Of course not.

Wake up America, and today when you do, choose to tough it out without “a quick snort” to start your day. Tell those who wish to fill your little vial that you threw away the spoon, and while you know damn well you’ll be using toothpicks to keep your eyelids open for a while, you’ll live through today, and tomorrow you’re going to get off your ass and force yourself to run a half-mile after work, starting the process of rebuilding that which we’ve destroyed — and accepting the inevitable pain that must be endured to do so.

Either that or start walking now, hoping to achieve minimum safe distance, and whatever you do, don’t look at the flash.